Saturday, May 24, 2014

Berkshire Hathaway: Beyond Buffett

If this is failure, I
want more of it.”

—Charlie
Munger

“The only succession for
Ajit Jain is reincarnation.”

—Warren
Buffett

Omaha, Nebraska, May 3,
2014.
It’s one year later, and I’m driving in pre-dawn darkness through downtown
Omaha to the 2014 Berkshire Hathaway shareholder meeting, which, up until about
a week ago, was looking like another cakewalk for Warren Buffett.

And while, as some wet-blanket observers have
pointed out, Berkshire’s 18% gain paled in comparison with the S&P 500 (up
32% including dividends—its best year since 1995), a $34 billion increase in
value would be a grand slam home run for any company, in any year…let alone for
a decentralized conglomerate in its 49th year under the watchful but aging eyes
of two men, one in his early 80’s and the other who just turned 90.

Indeed, so well did Berkshire’s businesses
perform last year that Buffett—who so frequently dwells on the negatives in his
self-assessments that Charlie Munger says, “Warren wants to make it
eccentrically difficult for himself”—kicked off his year-end shareholder
letter by writing, “just about everything turned out well for us last year.”

Then along came Buffett’s April 23 CNBC
interview with Becky Quick, and all anybody has talked about since is his Coca
Cola vote.

Kind of Un-American to
Vote ‘No’ at a Coke Meeting

During that fateful discussion, Quick—one of
the three journalists asking questions at the meeting here today—brought up
Buffett’s recent decision to abstain from voting Berkshire’s shares of Coca
Cola against a large option package for Coke management.

The Coke option grant had become something of
a cause célèbre on Wall Street after one “activist” Coke shareholder calculated
that the options could dilute existing Coke shareholders as much as 17% over
time, and he publicly urged other shareholders to help him vote it down.

Buffett, who doesn’t like to be railroaded
into doing anything, let alone going against the wishes of his longstanding
friends at Coca Cola, decided to abstain rather than vote against Coke management.

When Buffett was pressed by Quick on his
decision to avoid joining the activist uprising and merely abstain from voting
Berkshire’s shares, Buffett—normally a harsh critic of corporate “fat
cats”—seemed off his game.

“I love Coke, I love the management, I love
the directors, so I don’t want to vote no,” he told Quick and everyone
watching. Then the investor most famous for staying rational in the
frequently-irrational world of investing gave Becky the least rational reason
he could have given for his decision: It’s “kind of un-American to vote ‘no’ at
a Coke meeting,” he said.

Cries of hypocrisy and corporate cronyism
swiftly appeared in New York Times opinion pieces and across the Internet.It didn’t help that the options package had
been approved by Coke’s board of directors, which happens to include Buffett’s
oldest son, Howard.

The resulting kerfuffle prompted Buffett to
give several defensive TV interviews in response, but it was too late.The story has dominated the news leading up
to the Berkshire Hathaway shareholder meeting ever since.

And it will no doubt be the first topic of the
question and answer session due to start soon.

Hello, Goodbye

The Coke controversy is one big difference
between this year’s shareholder meeting and last year’s relatively quiet
gathering, but it is not the only difference.

For starters, the weather is way nicer this
year—the air was positively balmy leaving the hotel this morning—and the Omaha
skyline continues to sprout new buildings. The growth and optimism are
palpable, with new restaurants and bars springing up seemingly everywhere, and
apartment buildings going up in what used to be a very quiet downtown after
hours.

But the biggest difference between this
weekend and any of the last half-dozen shareholder meeting weekends is that in
three days of driving around Omaha, I still haven’t seen a picture of Warren
Buffett.

The billboards with his giant headshot, the
airport displays with his face on them, and even the trucks driving around town
with his photo on the sides—advertisements for the University of Nebraska
(“Warren Buffett, Class of 1951”)—they’re all gone.

Interestingly, Buffett’s public profile has
been reduced recently in other ways as well. NetJets, for example, no longer
advertises in the Wall Street Journal with photos of Warren Buffett flying in
comfort on the Berkshire-owned company’s time-sharing jets.In his place, the Berkshire Hathaway name is
promoted instead.

Furthermore, the Berkshire brand was slapped
on the company’s disparate real estate brokerage holdings last year—the first
time since Buffett took control of Berkshire Hathaway in 1965 that the name had
been used on anything outside its old textile business other than insurance. Just last week the company’s
Mid-American Energy business was renamed “Berkshire Hathaway Energy.”

The move away from Warren Buffett’s iconic
image, and towards Berkshire Hathaway’s own name, seems clearly designed to
ready the company for the day Buffett is no longer able to run the company he
built, and a successor takes his place as CEO.

It also makes what the radio happened to play
when I first started up the car this morning a bit spooky.Like last year, it was a Beatles classic;
unlike last year it wasn’t “Back in the USSR.”

It was “Hello, Goodbye.”

We’ll get some more clues about Buffett’s
successor even before the question and answer session starts later this
morning—during the cartoon, in case you’re wondering—and those clues may just
be the most obvious yet.

But we’ll also see that Warren Buffett isn’t
going anywhere soon, and neither is Charlie Munger, by the looks of things.

Both men will take the stage after the usual
rousing movie, to the usual rousing applause, from the usual packed arena. And at ages 83 and 90 they’ll prove to be in top form, answering more than 60
questions during the course of more than five and a half hours of Q&A,
while offering up a few more “secrets” for those who’ve made the journey to
Omaha.

First, however, they’ll have to deal with the
Coke controversy.

Forty-Five to One

Easily the most disappointing part of the
Berkshire Hathaway meeting weekend actually begins after the movie that kicks
things off, but just before Buffett calls for the first question from Carol
Loomis.

That’s when Buffett typically spends five or
ten minutes reviewing Berkshire’s quarterly earnings and any other unusual
company business that might have come up ahead of the meeting.

Today, that unusual company business happens
to be a Berkshire Hathaway shareholder’s proposal calling on Berkshire to pay a
dividend.It had been on the proxy
statement voted on by Berkshire’s shareholders, and Buffett wants to discuss
the voting.

Now, we all know a dividend will never happen
as long as Warren Buffett is around—after all, why give Berkshire’s cash to
shareholders when Warren Buffett can invest it better?—but a shareholder had
gotten it on the ballot anyway.

Buffett first puts up a slide of the proposal,
and while it reads kind of snarky, it’s very straightforward:

“Whereas the corporation
has more money than it needs and since the owners unlike Warren are not
multi-billionaires, the board shall consider paying a meaningful annual
dividend on the shares.”

Buffett acknowledges the chuckles at the
sarcastic language, and then puts up another slide showing how the voting came
out.He is clearly pleased.

It turns out the Berkshire shareholders sided with Buffett in a landslide, voting down the dividend proposal by an
overwhelming forty-five to one margin, despite the fact, as Buffett says
proudly, “we employed no proxy solicitation firm” to lobby shareholders to
shoot down the idea.

In fact, Buffett says, the result was “better
than I expected.”

The message from Buffett is clear: shareholder
votes matter, and when something comes along a shareholder doesn’t like, they
should go ahead and vote their conscience, because boards and their CEOs pay
attention.

He then calls on Fortune magazine Editor Carol
Loomis to ask the first question, and almost immediately contradicts that
message.

This Very
Un-Buffett-Like Behavior

Carol Loomis kicks off the Q&A, as usual.

She is a close friend of Buffett and longtime
Berkshire investor, but despite their relationship Carol never shies from
starting with the question that’s on everybody’s mind, no matter how
uncomfortable.

In this case, it’s about Buffett’s Coke
vote.Or, rather, about Buffett
abstaining from the Coke vote.

The question Carol has chosen (the reporters
get thousands of emailed questions prior to the meeting) asks Buffett to
justify “this very un-Buffett-like behavior.”

And Buffett begins his answer.

He first explains that the option plan wasn’t
as egregious as the calculations thrown around by the activist had made it
seem, and goes into a typically Buffett-esque, to-the-decimal-point analysis of
the numbers, which he clearly knows cold.

Nevertheless, he says, he did think the plan
was “excessive” and tells us he expressed that concern in a meeting with the
Coke CEO “right here in Omaha.”

All in all, however, he simply didn’t want to
“go to war with Coca Cola,” and felt abstaining on the vote while making his
opposition known to Coke’s CEO “was the most effective way of behaving for
Berkshire Hathaway.”

Charlie Munger backs up his friend, in his
usual crisp, dry fashion, saying, “I think you handled the whole situation very
well.”

A Person Should Just
Pick His Spots

But many shareholders in the arena clearly
don’t agree.

During previous meetings when Buffett has been
similarly challenged (during the David Sokol affair, for example), he had been
applauded for staunchly defending his behavior.

But
he gets no applause this morning, and further muddies the waters a few
questions later when Andrew Ross Sorkin asks a terrific follow-up question on
behalf of yet another shareholder upset with Buffett’s behavior.

Noting that Buffett’s son, Howard—who is
expected to become Berkshire’s board chairman should anything happen to
Warren—is not only on the board of Coke but voted for the same option plan his
father thought was “excessive,” Sorkin’s questioner wants to know how in the
world Howard Buffett would “enforce the Berkshire culture,” which is firmly
against the kind of corporate self-enrichment the Coke plan represents, when
Howard is running Berkshire’s board meetings after Warren is gone?

This time Buffett launches into an
unfortunate—but brutally honest—depiction of boards of directors that leaves
some of us wondering if somebody spiked the Cherry Coke Buffett drinks while on
stage.

“The nature of boards,” says Buffett, “is such
they’re part business organizations and part social organizations.”Buffett hammers home his point by noting
that directors are “getting paid $200,000-$300,000 a year,” so “believe, me, they
are not independent.”

Now, everybody here either knew that already
or suspected as much—but we’ve also had it drilled into our heads by Buffett
and Munger in this same venue that boards are not supposed to be anything but
representatives of the shareholders who own the company.

The mood is sour enough after this preamble,
but then Buffett drops the bombshell: “As a director,” he confesses, “I voted
for comp plans, and some acquisitions, that didn’t make sense.”

Charlie Munger gamely backs up his friend,
saying he doesn’t think “a person should just shout disapproval all day long,”
and “If we all did that all day long you wouldn’t be able to hear each
other.”That gets some applause and
Munger follows it up by saying simply, “I think a person should just pick their
spots.”

Buffett tries to finish off the discussion
with a classic Buffettism that is as unsatisfying as it is catchy: “If you keep
belching at the dinner table you’ll be eating in the kitchen.”

Coke discussion over, the Q&A session
moves on to less jarring topics.

I Don’t Think You Need
to Squeeze the Last Nickel Out of a Business

Thanks to the Q&A format—three reporters
and three analysts alternating with shareholders—the focus this year is on the
business, not on the personal stuff. As a result, Charlie Munger is doing a lot
of the talking, and that’s always a good thing.

When asked whether Berkshire plans to adopt
the ferocious cost-cutting measures of 3G (his Brazilian partners in the Heinz
acquisition), for example, Buffett demurs. “I do think 3G does a magnificent
job running businesses,” he says, but adds without elaborating, “It’s a
different style.”

Munger, as he often does, puts Buffett’s
thinking in plainer terms: “I think a lot of great businesses spill a little
because they don’t want to be fanatic, and that’s alright.I don’t think you need to squeeze the last
nickel out of a business.”

That Was The Best Use of
our $3 Billion That Day

As usual, both men travel the same wavelength.
(Buffett will later say, “Charlie and I have never had an argument,” and
they’ve known each other 55 years.)When
Buffett is asked a wonky question about Berkshire’s “cost of capital,” both men
deliciously pick the concept apart.

Now, “cost of capital” is a very hot topic
among public companies. So long as the projected returns on an acquisition or
new plant exceed a company’s “cost of capital,” they can tell shareholders,
with a straight face, the investment makes sense.It leads to a lot of bad behavior, and both
Buffett and Munger know it.

“I
figure our ‘cost of capital’ is what could be produced by our second-best
idea,” Buffett says, employing a common-sense approach completely at odds with
the highly theoretical, academic notion employed by most companies to justify
whatever spending they were going to do anyway. “I’ve heard so many ideas about
‘cost of capital,’” Buffett begins to expand his answer, but Munger cuts him
off.

“I’ve never heard an intelligent one,” Charlie
says flatly.

When the laughter subsides, Buffett resumes
the discussion, heavy on reality and light on theory: “We bought a company day
before yesterday (an electricity transmission company in Alberta), and we are
spending close to $3 billion (on the deal), and we think we will be better off
financially, and that was the best use of our $3 billion that day.”

“Cost
of capital” dispensed with, the meeting moves on.

Envy Dampeners

A shareholder wants to know why Berkshire
doesn’t disclose more about the salaries paid to its top earners in its
securities filings, the way many other companies do.

It’s an interesting and timely question,
coming in the aftermath of the financial crisis, which started a trend towards
more complete disclosure by all public companies, especially financial giants
like Berkshire.

Like “cost of capital,” this notion has a
nice-sounding label: “transparency.”

And like “cost of capital,” Buffett will have
none of it, and neither will Munger.

“There’s a real question whether it’s in the
interest of the company,” Buffett says, recalling his days as interim CEO of
Salomon Brothers, when disclosure of salaries backfired. “Virtually everybody
was disappointed with what they were getting paid … they looked at what
everyone else was getting and it drove them crazy.”

Munger adds, “In a spirit of ‘transparency’
you’re asking for something that wouldn’t be good for shareholders …. I would
say that envy is doing the country a lot of harm, and our practices are envy
dampeners.”

“Transparency” unmasked, Buffett is asked by
another shareholder to describe Berkshire’s “weak points.”

And his answer is itself a weak point.

Sweep Accounts and the
Alzheimer’s Home

Buffett avoids the substance of the question
altogether (the weak points at Berkshire Hathaway, as Buffett knows, would
certainly include the retailing businesses, which are being undermined by the
Internet in general and Amazon.com in particular) because he also knows that
many of the managers of those businesses are sitting in the arena here today,
and he would never want to embarrass them.

So he gropes for something substantive to say
that isn’t hurtful to anyone before latching onto the lack of “sweep accounts”
at Berkshire’s many operating companies.The idea is that Berkshire could make a few extra dollars if it stripped
all its companies’ cash out every night, but nobody’s buying it as a “weak
point,” so Buffett moves on to one that is more substantive: the fact that he
and his business partner are “slow to make management changes,” a well-known
trait of theirs, but also not particularly offensive to anyone here in the
arena.

Munger swiftly elaborates on the management
issue by telling a brief, Charlie-being-Charlie story about how he and Buffett
act so slowly moving out aging CEOs that “you and I took one man from the
executive chair to the Alzheimer’s home.” It shocks the audience when they
realize he’s not kidding.

Then, as the uncertain laughter dies down,
Munger softens the matter-of-fact harshness of his story by adding, “we made it
easy for the man.”

Ignorance Removal

Jonathan Brandt—one of the three analysts
asking questions today—queries Buffett about the declining prospects at See’s
Candies, one of the best acquisitions Berkshire ever made, but a business that
now seems past its prime.

Buffett has long lauded See’s profitability as
well as its products, keeping a conspicuous box of See’s peanut brittle on the
table between himself and Munger during the Q&A session every year.But—and quite surprisingly, given his reluctance
to say anything less than glowing about a Berkshire business in public—he
admits the prospects for boxed chocolate makers have diminished over the
years.Even more surprisingly, he offers
no prospect it will get better.

Still, Buffett points out, as he has in the
past, See’s “opened my eyes to the power of brands…. In 1972 we bought See’s
and in 1988 we bought Coke.”

Munger concurs. “There’s no question about the
fact its main contribution to Berkshire was ignorance removal,” he says. “The
secret to Berkshire is we are good at ignorance removal.”

After some laughter, Munger adds, “The good
news is we have a lot of ignorance left to remove.”

A logical follow-up to the See’s question
comes to mind: did Buffett’s habit of taking most of his companies’ cash to
invest in other opportunities (see Chapter 36, Decline and Fall of the Sainted
Seven, in “Secrets in Plain Sight: Business and Investing Secrets of Warren
Buffett,” eBooks on Investing 2014) hurt See’s ability to expand over the
years?

Unfortunately, it isn’t asked.

I Don’t Want to be
Holier Than Thou

What is
asked is a question about a popular tax-dodge technique currently all the rage
among major US corporations.

Asked by a shareholder if Buffett would
consider doing a “tax inversion”—whereby US companies buy foreign companies in
low-tax jurisdictions, change their corporate address to the low-tax country
and thereby massively cut their cash taxes—Buffett says flatly, “The answer to
that is no.”

Munger concurs. “I think it would be crazy to
be as prosperous as Berkshire and get our taxes to zero.”

When applause starts to ripple through the
arena, however, Buffett tamps it down.

“I don’t want to be holier-than-thou,” he
says, noting, “The wind deals we do (Berkshire Hathaway Energy is the biggest
wind farm operator in the country), the solar deals we do, those are
tax-driven. They wouldn’t make economic sense otherwise.”

It’s an answer that will drive more than a few
editorial opinion writers crazy—Warren Buffett admitting he uses the tax code
to cut Berkshire’s tax bill. But if they had been paying attention over the
years it wouldn’t have surprised them in the least.

What might have surprised them, however, is
how well Warren and Charlie are doing here today.

Both Lennon and McCartney

Buffett and Munger haven’t slowed down one
bit.

The meeting started at 9:30 a.m., broke for
lunch at noon, resumed a bit after 1 p.m. and will go until just after 3:30
p.m.

Thanks to the more controlled format, with
reporters and analysts sharing questions with shareholders, the number of “What
should I do with my life?”-type questions has been cut almost to zero.

Also, since Buffett didn’t give his usual
warning about “no two-part questions” at the start, he and Munger have been
getting a number of two-or-three-part questions all along.So while they will collectively take
questions from 62 individuals today, the total number of questions they’ll
answer will be closer to 70—nearly 50% more than when it was a
shareholders-only Q&A.

Even better, since so few of them are about
life-lessons from Warren Buffett, Charlie Munger will speak up on all but three
questions the entire day.

It’s like getting both Lennon and McCartney, not just one or the
other.

In fact, the Beatles analogy seems exact:
Buffett as Paul McCartney: amiable, eager to please, but very likely the
smartest guy in the room.Munger, of
course, as pure John Lennon: just as sharp and just as quick, but, best of all,
more inclined so say exactly what’s on his mind.

For example …

We’re Very Peculiar

On the returns generated by corporate
acquisitions: “I think the sum total of all acquisitions done by American
industry will be lousy,” says Munger.“It’s in the nature of corporations to be talked into dumb deals.”

Berkshire’s acquisition style—buying great
businesses at reasonable prices and holding them forever—is, he says, quite
different from the norm.

“We’re very peculiar.Luckily a lot of people don’t want to be
peculiar in our way.

The Pursuit of the
Uneatable by the Unspeakable

Not surprisingly, Munger disapproves of the
current fad of “activist” investors pushing public companies to get their stock
price up any way they can.

“In the culture we live in most people don’t
care how the money is earned, they just care about the money …. Reminds me of
Oscar Wilde’s definition of fox-hunting: ‘The pursuit of the uneatable by the
unspeakable.’”

On whether the U.S. government should bring
criminal charges against bankers for their behavior during the financial
crisis: “I think the behavior on Wall Street is remarkably improved,” he says,
but adds, “Prosecution of individuals does more to stop bad behavior” than
prosecuting companies.

Where Do You Think We’re
Vulnerable?

On the topic of the Internet, Munger says
flatly, “I think the Internet is very disruptive. It is changing the world. I
think retail is especially going to be hurt.”

Buffett immediately follows up by asking his
partner, “Where do you think we’re most vulnerable?”

It is a question that almost certainly rings
in the ears of the many managers and employees from the Berkshire retail
businesses, ranging from Borsheims to Ben Bridge Jeweler to Nebraska Furniture
Mart, who are sitting in the arena today, but Munger demurs. “Well, I don’t
want to say,” he says carefully.

“Now you’ve got them all wondering,” Buffett
grumbles, to laughter.

If This Is Failure, I
Want More Of It

When the subject of Berkshire’s relative
underperformance in 2013 comes up, both men defend the status quo—but Munger
makes the case far more forcefully than his partner.

“In the last two years the book value of
Berkshire has gone up $90 billion pre-tax,” Munger says the first time the
issue comes up. He lets that sink in before adding, “If this is failure, I want
more of it.”

It brings down the house.

And when the topic reoccurs during the last
question of the day—“Is there a practical way to break up Berkshire Hathaway
into four companies?” a shareholder asks—Buffett tries to respond logically
while his partner goes for the gut.

“We would lose value,” Buffett says. “There
are large advantages” to Berkshire
staying together, he adds without elaborating. “There’s no advantage (to
splitting up).It would be a terrible
mistake.”

Munger doesn’t argue the matter.He simply concludes the discussion, and ends
the afternoon session, by referring to the move in Berkshire’s Class A stock
during the last four years from below $100,000 per share to nearly $200,000 as
of today’s meeting: “You’re not being deprived when the stock goes from $100 to
$200,” he says drily.

The Dynamic Duo

There was one more difference between this
year’s meeting and last, besides the lack of Warren Buffett photos around town
and the brouhaha over the Coca Cola vote, and it involved something that’s been
on the minds of Berkshire Hathaway shareholders for years.

Calling Buffett and Munger a “dynamic duo,” a
shareholder inquired whether there is “a successor for Charlie?”

It’s a question that had never been asked
before.

Most 90-Year Old Men in
the World Are Gone Soon Enough

Buffett first responded with a joke about
Charlie’s age—“Well, Charlie is my canary in the coal mine,” he said. “Charlie
turned 90 and I’m finding it very encouraging how he’s handling middle age.”

After the laughter died down, Buffett turned
serious, describing how other companies such as Coca Cola and Cap Cities ran
very successfully when a pair of “complementary” executives shared the load.
“It’s a great way to operate,” he said, adding he’d be “very surprised” if his
successor didn’t have an alter ego like Charlie. “But so far nobody’s brought
up any successor to Charlie.”

Munger dismissed the issue, and his own
importance in the continued success of Berkshire Hathaway, as only he can. “I
don’t think the world has much to worry about. Most 90 year-old men in the
world are gone soon enough.”

Sixty-two-year-old men, however, are a
different matter.

The Only Succession for
Ajit Would Be Reincarnation

Asked early in the meeting today who will
succeed Ajit Jain, the 62 year-old head of Berkshire Hathaway’s giant
reinsurance business, Buffett’s answer was swift and certain.

“The
only succession for Ajit would be reincarnation,” he said flatly.

Buffett’s admiration for Ajit Jain is well
known. He wrote, “Ajit’s mind is an idea factory” in this year’s shareholder
letter, and has mentioned Jain glowingly several times today—and in ways that
made it clear Ajit runs his own show.

For example, asked about providing insurance
for railroads moving crude oil—a high-risk business if ever there was
one—Buffett says, “Ajit has offered some very high limits, but they (the
railroads) don’t like his price.”

Moreover, he has depicted Jain not merely as
the head of a Berkshire subsidiary, but as a business partner, akin to Charlie Munger.For example, when asked about the impact of
climate change on Berkshire’s operations, Buffett began his answer, “When Ajit
and I talk about what we’ll charge for catastrophes …”

It was a very telling moment, and left few
doubts as to who has been tapped to be Berkshire Hathaway’s CEO if and when
Warren Buffett can no longer fulfill that role.

But it was the cartoon during today’s movie that
really said it all.

87% Chance of Winning

The cartoon is an innocuous bit of fun that
always kicks off the movie that starts the Berkshire Hathaway annual meeting.

And today’s cartoon seemed to be nothing
special—a standard Berkshire-esque fantasy about a U.S.-Russia face off in the
Olympics ice hockey final (the timing was unfortunate, because in the real world
Russia has been ripping apart Ukraine)—but its subliminal message was very
special.

The premise is that the U.S. hockey team has
been mysteriously taken ill at the last minute, and Buffett recruits his
Berkshire friends to take their place—Charlie Munger, board members Bill Gates
and Tom Murphy, GEICO’s Tony Nicely, and a cartoon version of “Mrs. See” from
the Berkshire-owned candy company—against the Russians, who are drawn as large
goons that say—and I am not making this up—“We make minced borsch out of you,
ha ha ha.” (I said it was nothing special.)

However, the coach of the Berkshire team just
happens to be Ajit Jain.

And when the team is in danger of losing,
Coach Jain draws up an amusingly complex final play, as you’d expect from a guy
who deals in complex reinsurance products.In Jain’s real voice, he declares it gives the U.S. team “an 87% chance
of winning.”

Of course, the play works: the U.S. scores the
winning goal as time expires, and the cartoon Berkshire hockey team gathers to
celebrate.While the credits roll, the
Berkshire team tosses two figures in the air: Warren Buffett and Ajit Jain.

But it’s not just cartoons and kind words that
make Ajit Jain the likely successor to Warren Buffett at the helm of Berkshire
Hathaway.

Berkshire is, at its core, an insurance
company—and one with an unusual book of business that, in the case of the
Lloyds of London asbestos claims for example, covers unknowable obligations
stretching out for decades. And Warren Buffett is not going to trust his legacy
to just anybody: he wants someone as capable of assessing risk as he is—someone
who, as he put it several years ago, can “envision things that have never
happened” so that those obligations will be paid, and his legacy is never endangered.

Which means that, like all the “secrets” in “Secrets
in Plain Sight: Business and Investing Secrets of Warren Buffett,” the last “secret” we’ll reveal is sitting in plain sight:
the most logical CEO successor to Warren Buffett at Berkshire Hathaway—and,
since Warren Buffett is a very logical man, the likely choice of the Berkshire
board—is Ajit Jain.

And that should be immensely reassuring to
Berkshire Hathaway’s managers and investors for years to come.

Jeff Matthews

Author “Secrets in Plain
Sight: Business and Investing Secrets of Warren Buffett”

The
content contained in this blog represents only the opinions of Mr.
Matthews.Mr. Matthews also acts as an
advisor and clients advised by Mr. Matthews may hold either long or short
positions in securities of various companies discussed in the blog based upon
Mr. Matthews’ recommendations.This
commentary in no way constitutes investment advice, and should never be relied
on in making an investment decision, ever.Also, this blog is not a solicitation of business by Mr. Matthews: all
inquiries will be ignored.And if you
think Mr. Matthews is kidding about that, he is not.The content herein is intended solely for the
entertainment of the reader, and the author.

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Anonymous
said...

Jeff, sometimes I attend AGMs in my hometown (Eastern Europe). Even though these are small gatherings, the voting for the resolutions may take hours. How do they technically do it on such a huge event as BRK AGM? Thanks for all your writings about Berkshire!

I last saw WEB in person ten years ago at the annual meeting. He is clearly aging. If he had less ego, he would name a new CEO now and retain the role of Chairman, with the responsibility for asset allocation, until he was ready to retire. He could work daily with the CEO to make sure the transition is smooth. If he instead waits until he is incapacitated or dies, the shock will be much greater and there will be no transition period.

It's not the goofiest rumor about BRK I've ever heard but I wouldn't over-think Buffett's denial. A $200B deal for KO would be 50% of Berkshire's asset base. BNSF was maybe 20%. I would expect a $50 billion deal, not a $200 billion deal.

Jeff, your book Pilgrimage to Omaha inspired me to attend the Annual Meetings ever since ... thanks. I haven't had a chance to read your book on Buffett's successor(s) yet but here is my 2 cents worth:

I think that we all agree that his responsibilities will have to be divided up into 3. Howard on the Board, Todd & Ted doing investments and that leaves the "face" of the business. In describing Ajit, both Warren & Charlie have stated that he hates the spotlight, yet this is precisely what this job will require. Since an increasing part of the position entails attracting new businesses to join Berkshire, there is a value in having a "star" be on the other end of the phone to accept any deals.

When I think of it in those terms, there is a real difference in saying "Berkshire Hathaway is calling, Ajit Jain is on the line" or Berkshire Hathaway is calling, Bill Gates is on the line". The new CEO who is the face of the company will have to be comfortable in front of the cameras, in interviews on CNBC, tossing newspapers, playing bridge / pingpong at the annual meetings etc. There already is someone who has been practicing for this role. Also, Bill Gates has appeared on CNBC with Warren and Charlie and answered questions on Berkshire's future.

This is just my amateur opinion. Once Warren was very uncomfortable in public speaking situations and then he learned to embrace it and Bill Gates is very much cut out of the same cloth. He has a certain "star power" that would serve Berkshire very well in this role.

I'd be interested in your thoughts on this. (Sorry for the delay in commenting on your post. I wanted to post this before the 2014 Annual letter is published this weekend.)